This year may be remembered as the one when chipmakers decided to truly commit to manufacturing in the U.S., with companies like Intel, Samsung and TSMC announcing their intent to build factories here for the purpose of producing semiconductors.
Not long after the industry giants stated the proposed factory projects, the chipmaker Micron announced that it planned to build the largest factory in the U.S. dedicated to making semiconductors. It may spend as much as $100 billion over the next 20 years to fully build out this massive (i.e., size of 40 football fields) facility in upstate New York. All in all, manufacturing memory chips domestically would dramatically impact how the United States gets its supply of chips.
However, there is always a danger between potential and reality that we must watch out for.
Suppose three years from now, all of these factories go “live” in the U.S. At that time, the prospect of U.S. chipmaking may be very expensive. Why? Contrary to what some may hear, there are many chips on the market right now. So many, in fact, that it is driving down the share price of certain chipmaking companies – in some cases, by hundreds of dollars per share.
Therefore, the risk of manufacturing chips is that by the time the U.S. factories come to fruition and reach full production capability…we could be spending a fortune to enter a market that may or may not be a highly unprofitable venture, at least in the early going.
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The truth is that the motivation to build semiconductor factories here is less rooted in dollars and more driven by global relations.
What happens if China decides to invade Taiwan, which has many fabrication factories, the largest of which is TSMC? Being efficient in receiving chips domestically will not be the primary factor. It will be more from a “defense spending” perspective.
We may not think of it that way compared to spending on a military fighter jet, but from a defensive position, it does make sense.
The trick is to avoid mixing this with the interests of certain politicians. At the moment, it’s OK to say that manufacturing chips in the U.S. is strategic and defensive. But later on down the road, the pace and location of chipmaking facilities could be influenced by people in power who say, “I have a responsibility to my constituents to build a factory in our state, which could bring thousands of jobs.” A tug-of-war could ensue, tying up the timelines of these factories going live. That’s called building bridges to nowhere.
At a glance, manufacturing chips in the U.S. may appear to have the purpose of being more competitive or profitable. However, that’s not my take and it’s not bearing out. The real purpose, I believe, is to act as a national defense against the event of China taking over several of the chipmaking facilities in Taiwan.
Yes, having leverage in the form of several U.S-based facilities could guard against this prospect, as long as we as a country are prepared to pay a whole lot for that international position for a very long time.
I have a feeling the final tab in getting those factories up and running will be much more than anyone projected.
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